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Friday, May 28, 2010
Corporate taxes are unfair
Yesterday I wrote a post that described why Capital Gains taxes are unfair. It seems that Maxime Bernier was doing the same thing the day before, except with corporate taxes. In an article that can only make me jump for joy that it was written by an elected official, Mr. Bernier describes how it is that everyone pays for corporate taxes:
From the perspective of corporations, taxes are an additional cost of doing business. If you increase their taxes, to remain profitable they will have to find ways to lower other costs, or to increase revenues.
How does a corporation do this? One way is to reduce the returns to its owners and investors. In that sense, it becomes the equivalent of a capital tax, or a capital gains tax. It is not the corporation that pays the tax, but rather its owners and investors. And since capital is mobile, there is a limit to how much you can tax it. The result, as with the capital tax, is that we end up discouraging capital accumulation and investments in Canada.
Another way for corporations to shift the burden of their income tax is to increase the price of what they produce. In that sense, it becomes the equivalent of a tax on consumption. It is the consumers who pay it, not the corporation.
A corporation can also decide to cut down on its factors of production by laying off workers, reducing their wages, investing less in new equipment, or buying fewer inputs from its suppliers. Once again, in the end, it is real people who will pay the tax, either the company’s workers or the workers of other companies that do business with it.
So to recap, we all pay corporate taxes through higher prices and loss of jobs. Those who invest pay taxes twice on their investment: once through corporate taxes and once through their personal income tax.
A strong argument for lowering income taxes is that it makes Canada a competitive option for global investors. But even if Canada was the sole country in the world, lowering income taxes would still be the intelligent economic policy. As Mr. Bernier points out, lower corporate taxes means more jobs and greater spending power. This means that there is more wealth in the country and greater productivity. The group of people that proportionally benefit the most from increased productivity and wealth is the poor.
You want to help the poor?
Lower corporate taxes.
Posted by Hugh MacIntyre on May 28, 2010 | Permalink
Comments
Hugh, well said. Someone once told me that you can no more get blood from a stone than taxes from a corporation. In other words, corporate taxes are ALWAYS paid by people.
Posted by: TM | 2010-05-28 9:56:20 AM
Exactly, that is just plain common sense.
Posted by: Floyd Looney | 2010-05-28 11:57:41 AM
If common sense is not common does that not make it uncommon sense?
Posted by: Eddie Brettingham | 2010-05-28 12:04:24 PM
Other than politics of the Marxist class struggle mentality (envy), the only reason to oppose eliminating all corporate income taxes would be the concerns of thousands of lawyers and accountants who would have to find productive employment.
Posted by: John Chittick | 2010-05-28 1:48:45 PM
Other than politics of the Marxist class struggle mentality (envy), the only reason to oppose eliminating all corporate income taxes would be the concerns of thousands of lawyers and accountants who would have to find productive employment.
Posted by: John Chittick | 2010-05-28 1:48:45 PM
True, but then again with all that extra money in the hands of the people, more wealth and jobs will result in the need for more of them again. They will survive. It is the bureaucrats that will have a problem.
Posted by: TM | 2010-05-28 4:02:12 PM
Hugh MacIntyre you practise voodoo economics. The last 30 years have shown decisively that the incomes of the very rich can expand massively with very little or none of it trickling down to the remaining 95% of the population.
I have a more logical solution. If you care about the poor, as you claim, then you cut taxes on the poor! Imagine that! Eliminate the sales tax, and property taxes on low income housing. These are tax cuts which are far more likely to help the poor.
Posted by: Shelley | 2010-05-28 6:31:45 PM
Shelley claims that Hugh practises "voodoo" economics, but her own comments confirm that she is a socialist/communist. In other words it is okay to steal from and punish the productive citizens to reward those who choose to look to the state for their well being. It is economics based on envy and theft.
Posted by: Alain | 2010-05-28 8:13:06 PM
Alain, spot on.
Shelley, if the rich have earned their fortunes, and the poor have not, then you are talking about charity. It just so happens that the rich give huge sums to charity already without being forced to do so by the state.
Posted by: TM | 2010-05-29 12:10:40 PM
I wouldn't say that the most rich in society have necessarily earned their wealth. Nor would many libertarians like Ron Paul.
The top 1% in our country is dominated by a corporate elite that directly benefits from our inflationary financial system to the detriment of the poor.
As bankers create money, gauranteed by the central bank, the poor are effectively taxed through the debasement of their wages and savings. This doesn't apply to all rich people of course, as many people got rich by actually building real wealth.
But in many cases, the super elite are simply getting more elite due to their stature in the financial system. A financial system that mostly destroys real wealth, and functions as a tax on the rest of the economy, making them richer and richer disproportionately.
The wealth gap in many ways is a reverse-socialist phenomenon. Not something you'd see in a truly free market.
Posted by: Mike Brock | 2010-05-30 12:24:57 PM
The wealth gap in many ways is a reverse-socialist phenomenon. Not something you'd see in a truly free market.
Posted by: Mike Brock | 2010-05-30 12:24:57 PM
Nor in Norway, Sweden or Finland. Are they "truly free market" countries?
Posted by: The Stig | 2010-05-30 5:07:00 PM
"Nor in Norway, Sweden or Finland. Are they "truly free market" countries?"
Most Scandinavian countries balance their budgets. They do so by having a very high, flat structure of income taxes (mostly). By having a balanced budget, there is no need to inflate the money supply as much, hence less of a wealth gap.
Posted by: Charles | 2010-05-31 5:37:59 AM
Stig,
There's a few different ways of looking at the Scandinavian countries. And all is not bad in Sweden and Finland in terms of the free market.
The problem with many on the right is they obsess a little too viciously over nominal tax levels, and pay very little attention to monetary policy.
For instance, in Sweden, a savings account will yield higher-than-inflation return due to the tighter monetary policy. Whereas in Canada or the US, a dollar saved is most certainly not a dollar earned. In fact, a dollar saved is a dollar debased.
Since inflation outpaces savings interest in our way of doing things, it's much more difficult to save for retirement in Canada than it is in Sweden. Simply because the monetary policy in Canada is fast and loose, and the monetary policy in Sweden in slow and tight.
This has the effect of preserving the wealth of the savers for Sweden, and punishing those who over-consume.
Canada's methodology of low taxation, and subsidized economic activity through inflation creates perverse incentives that encourage consumer borrowing, discourage savings, and pretty much ensure that if you don't invest a huge sum of your money you'll never be able to retire.
So we obsess over Sweden's tax burden and shiver about it's socialist undertones, but we pay very little attention to the wealth redistribution happening here through inflationary monetary policy which weakens every dollar saved.
So while this will come as a surprise to some: yes, in some ways Sweden does have a freer market. In other ways, particularly in regulatory areas, no so much.
Posted by: Mike Brock | 2010-05-31 12:30:26 PM
I should add, that when you're doing comparative economics between two different economies, you cannot assume that dollars-in/dollars-out is a zero-sum game. It's not.
If you consider the degree to which inflation affects our wealth, by inflating asset prices for real estate, pushing up the cost of food, etc. due to the perpetual devaluation of the currency, you realize that we're pretty much just as highly taxed as Sweden. And perhaps even moreso, if you weight government consumption in aggregate, and discount individual discretion somewhat.
Posted by: Mike Brock | 2010-05-31 12:41:45 PM
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